Yahoo! v Facebook: Peace Breaks Out

Among the plethora of patent battles taking place in the mobile device sphere, a less well reported battle between two internet giants has recently settled. The battle was between an old veteran of the web, Yahoo! and a new upcoming giant, Facebook.

Accepted Friend Requests

Prior to the dispute, Yahoo! and Facebook had collaborated. Yahoo! had tied much of its content and services to Facebook.

Unfriended Each Other

In March, however, this relationship changed when Yahoo! asserted that Facebook infringed 10 of its patents relating to advertising, social networking and privacy controls. The timing of the suit was at a sensitive time for Facebook given its imminent initial public offering (IPO). Yahoo! may have hoped that Facebook would have thrown in the towel early to avoid complicating the IPO process. This happened in 2004 in the run-up to Google’s IPO when Yahoo! asserted its patents against Google. The settlement resulted in Yahoo! receiving 2.7 million Google shares. However, instead of reaching for the towel, Facebook reached for its corporate wallet.

Facebook purchased a large number of patents from other, more established, sources. In late March, Facebook announced it had purchased 750 patents from IBM covering software and networking.

Facebook then went on the offensive alleging that Yahoo! infringed 10 of its patents. These allegations related to the manner in which Yahoo! selects and displays advertisements on its homepage. In addition, Facebook alleged that Yahoo’s photo sharing service, Flickr, infringed several of these patents.

In order to bolster its position, in late April, Facebook purchased a further 650 patents from Microsoft for $550 million. These patents were purchased from one of Yahoo’s competitors, America On-Line (AOL), by Microsoft in early April. Facebook also licensed the remaining 275 patents purchased by Microsoft in their deal with AOL.

Yahoo! increased hostilities further on 27 April by alleging that Facebook infringed a further 2 of its patents.

As both companies began positioning themselves for battle, in May, Yahoo’s CEO resigned over questions about his résumé. Both companies took advantage of this watershed moment by opening talks.

Facebook and Yahoo! Like This

The high level talks that took place between these companies settled the patent dispute. Both companies agreed to a patent portfolio cross-licence. In addition to the cross licence agreement, an advertising and content-sharing alliance between the two companies has been set-up. This alliance strengthens the collaboration that had taken place prior to the dispute. The two companies will now display advertisements on each others’ sites and Yahoo! will feed its news coverage on major events to the social networker. Importantly, no money was exchanged as a result of this settlement.

In My Opinion (IMO)

Unlike many of the patent disputes in the mobile sector, this dispute was seemingly not motivated to protect market share or to win a competitive advantage by stopping products being imported. Instead, many critics feel that Yahoo’s motivation was to leverage money from Facebook by bringing this action so close to Facebook’s IPO.

However, following break out of peace, what has each company achieved?

This dispute highlighted the relative weakness of Facebook’s patent portfolio. By defending the suit, Facebook has strengthened its patent position thus insulating itself from the effects of any future suits. Additionally, by reinforcing the alliance, Facebook gains the opportunity to shows adverts tailored to 900 million of its users in other heavily trafficked areas other than its own website.

Yahoo, which has increasingly lost search revenue to Google, now has the opportunity to try and recover some revenue as marketing departments spend an increasing amount of money targeting engaged users of social networks.

As a result of the agreement, Yahoo! and Facebook have turned this dispute into a win-win situation for both companies.

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